Dollar Rises vs. Yen on Surprise Gain in Retail Sales


The dollar rose to a one-month high against the yen Wednesday after government data showed an unexpected rise in U.S. retail sales last month, momentarily dampening views that the U.S. economy is contracting.

The small gain in January retail sales bucked expectations for monthly U.S. cash register receipts to show their first back-to-back drop in 4-1/2 years.

"The data is clearly a surprise to the upside. It is somewhat reassuring to a market that had been concerned with a slowdown in consumer spending, which of course raises the risk of a recession," said Omer Esiner, market analyst at Ruesch International in Washington.

"On balance, the report is dollar-positive, although I don't think it changes the outlook for further (Federal Reserve interest) rate cuts," Esiner said. "But in the near term, it does ease some recession concerns."

The dollar jumped against the yen after the data, rising to a one-month high of 108.22 yen before easing slightly.

Dealers reported substantial selling interest above 108 yen, suggesting the greenback may have difficulty holding above that level for long.

CMC Markets analyst Ashraf Laidi said the dollar could run out of steam later in the session as traders scale back positions ahead of Thursday's testimony by Fed Chairman Ben Bernanke, who may signal more rate cuts to come.

Since September, the Fed has slashed benchmark interest by 2.25 percentage points to 3 percent. Some investors have said this aggressive easing may be helping to keep the economy out of a recession.

The euro dipped versus the dollar, but it rose slightly against the yen .

Analysts said the sunny U.S. retail sales report was helping boost risk appetite. That tends to weigh on the yen, which investors borrow cheaply to buy higher-yield currencies.

But Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut, said the data doesn't change the bigger-picture view of decelerating U.S. consumer spending.

"I don't think this data is decisive enough to shift broader expectations one way or the other," he said. "The market mood is particularly confused at the moment."

Elsewhere, sterling was little changed at $1.9606, having surrendered earlier gains seen after the Bank of England said in a quarterly inflation report that it would overshoot its 2 percent inflation target if it cuts rates too quickly.

The Swedish kroner  also rose against the dollar after the Riksbank surprised markets by hiking rates to 4.25 percent, though Brown Brothers Harriman strategists said that may provide a good reason to buy dollars in the coming months as the Fed winds down its easing cycle.